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Why The Bank You Know Today Will Disappear

It may take 10 or even 20 years, but the bank you know today is going away. For good. It will either reinvent itself from the inside out or simply disappear as a casualty of market forces. Digitisation continues to disrupt almost every area of financial services. New market entrants are targeting customers as banks that aren’t actually banks go after your market share while others are still figuring out how to swallow the digital pill.

Empowered customers controlling the buying process are demanding new levels of personalised omni-channel experiences. But the goal posts keep moving. As the generations get younger, the gap between service levels and customer expectations keeps getting bigger with some struggling to remain relevant on the information super high street.

Regulatory burdens are increasing the cost of capital, while macro-economic dynamics, such as low interest rates and restrictions limiting the ability to extract service fees and commissions from customers, hit profitability.

Legacy systems sitting in the quagmire of spaghetti landscapes built for pushing your bank’s products were never designed to cater to 21st century consumer lifestyle needs. With the value chain challenged by customers, and simultaneously hi-jacked by disruptors, attempts at innovating often equate to well-meaning yet insular siloes.

If it’s properly understood, sensibly embraced, and well executed, then digitisation can transform traditional financial institutions not just to overcome, but to thrive. The change required is significant. But it can – and must – be done. Any action taken must be in the context of a well thought out strategic roadmap. Or you’ll sink straight back into another silo. Think strategically. Make sure you understand the holistic elements of the new world order and the business model that supports it.

Speaking broadly, banks need to work on three key levels if they are to compete effectively – customer experience, collaboration (leveraging ecosystems, business networks and products from outside the group where they are a best fit for customer needs), and agility, particularly with regards to response times of platforms, and decision-making capabilities. The recent SAP Financial Services Forum in London tackled this and other related issues head on. If you missed it, you can still get access to the critical insights and advice from banks, insurance companies, fintech providers, challenger banks, and industry thought leaders by downloading the eBook: “The digital evolution – As technology transforms financial services who will triumph”.

In my experience, financial institutions are well aware that they have a problem, but either underestimate the impact or simply don’t know where to start. Survival in this brave new world isn’t just about a change of technology platform or operating procedures. It’s a complete change of mind-set - and a whole new world of possibilities ahead.

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Comments: (8)

Clive Munn
Clive Munn - MFTSE Affairs S.A. - Luxembourg 09 September, 2015, 10:13Be the first to give this comment the thumbs up 0 likes

Thanks for your article, I believe the subject is interesting but should it not be bankers who are discussing these issues rather than IT 'experts' or jounalists? As has been said many times, IT is an enabler for change, the change is not driven by it just as those who have not practised or been brought up as bankers are unlikely to be able to overhall the entire industry which is much bigger than most realise. Yes banking will be different in the future just as medicine, the legal profession and almost anything we care to name will change and largely due to the 'new world of possibilities ahead' you mention. In the case of banking, I believe that we need to keep in mind that banking is a service industry and any rebuilding including new innovation must start from here. Know what the customers needs are and ensure that those needs are met in the best, most efficient, transparent and rewarding way for both individuals, the world economy and our future.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 September, 2015, 16:00Be the first to give this comment the thumbs up 0 likes

It's easy to predict 10 to 20 years ahead but let me go out on a limb and predict that the current crop of wannable bank disruptors will disappear if they fail to kill banks in the next 3-5 years. 

A Finextra member
A Finextra member 09 September, 2015, 16:321 like 1 like

Again another good article with respective comments. Let all of us be real about changes, they will happen. Forget banks for the moment, children in Pre K and above are being educated with smart boards, tablets, Ipads and new electronic devices expecting immediate responses for questions and services. With this thought process what do you hink the children are expecting. The education system does not even teach "what is a check" yet the children cand ownload products from itune, amozon and other and have complete satisfaction in 30 seconds. Change will happen. Be prepared and ready for it. Europe and third world countries are moving faster than the United States. The world is more international and the children are communicating with each other through their devices. Change will happen and it will not take 10 years. Let us move forward with some good answers. Bankers wake up, do you really expect a child to come into your branch to open an account or to get a loan, this will not happen. Please stop debating, get your head out of the sand and recognoze the challenge. Demamd new products and services from your service providers to support these new requirements. Please make the changes in your back rooms to handle the faster response and the quicker reconciliations. Speak up.

Thank You 

A Finextra member
A Finextra member 12 September, 2015, 05:361 like 1 like

Thanks Roger. I agree that there is a degree of 'head in the sand' from many organisations and far too much effort being spent on internal issues rather than looking at whether they will be fit for purpose in the future. The winners will be those that truly understand that banking is not an activity in itself, it is an enabler of a customer need.

 

A Finextra member
A Finextra member 12 September, 2015, 05:40Be the first to give this comment the thumbs up 0 likes

Hi Clive. You are right but i find that bankers are also interested in a wide set of opinions and predictions.

The key issue for me is that for hundreds of years the customer hasn't really been in control of the relationship but that is changing fast.... There is a finite window for financial services organisations to get their house in order or the customers will find another way

A Finextra member
A Finextra member 12 September, 2015, 05:43Be the first to give this comment the thumbs up 0 likes

Thanks Ketharaman. As always you are very perceptive! One of the sad things to me is that some of the 'challengers' and new entrants haven't leveraged the potential advantages of technology and agility in order to create a new wave of banking.

Clive Munn
Clive Munn - MFTSE Affairs S.A. - Luxembourg 12 September, 2015, 09:50Be the first to give this comment the thumbs up 0 likes

Hi Laurence, You say you "find that bankers are also interested in a wide set of opinions and predictions" I think that this is the norm because there are few professions that are so diversified in their expertise and experience, perhaps accounting is to some extent similar as a service industry to others. A career in IT can provide wide diversity of course but digitalising or providing a tool for a specific function does not, in my opinion, mean that you can replace the person or function that you have managed to computerise.

You are right that for hundreds of years the customer hasn't really been in control of the relationship and that this is changing fast, just as politics is changing ad the public must, in my view, take more control or have more influence. As regards the window for financial services organisations to get their house in order, I am not sure it is so finite. Customers will and are already finding other ways - a close friend recently took out a zopa loan for example. IT is however serving both banking and the new innovative ideas but banks have the dual opportunity of being innovative themselves (which they must be) or following, joining or even taking over such innovations like Virgin Money for example.

Therefore "The Bank You Know Today Will Disappear" is, for me, an overstatement. Clearly banks will and are changing. They also have a lot of wounds to heal but as is often the case after a crisis, I believe they will emerge stronger than before in terms of fulfilling their role as service organisations and this with the help of the IT industry.

“The digital evolution – As technology transforms financial services who will triumph”

In short I don't believe there is a competition here. Both Financial Services and IT will triumph for the new innovations and we can move forward bringing financial aid to the unbanked, the poor, environmental change etc., winning by sharing and thereby boosting the world economy.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 September, 2015, 12:381 like 1 like

Hi @LaurenceLeyden:

TY for your reply and kind words. Maybe it's because I'm "very perceptive" - your words, not mine! - I tend to believe that the problem with nonbanks is quite the opposite. IMO, they're too drunk on the Kool-Aid of technology, agile etc. and are completely forgetting the business process they're trying to address. Just one example: With all their newfangled technology, snazzy UI, agile, fail fast, blah blah blah, all that many MObile Money Management Apps do - or advertise that they do - is to help people save $1 on a $4.5 coffee. Is that earth shattering or what? How many banks will they kill with that “business process”?

In the course of my work, I've found that most challenger companies assume that tech-mediation - aka push a button on a mobile app - is be all and end all of what they need to do. They simply don't understand that they stand a chance of disrupting banking only by solving a serious business problem that banking is not already solving and do it profitably. Their VC-funded runways will last another 3-5 years, which is why I commented that, if they don't disrupt banks in 3-5 years, they won't be around to disrupt banks after 10-20 years.